China's surging instant noodle business sets off scramble for market share

It is no surprise that instant noodles are big business China, given that many of the country's 1.3 billion people eat them every day.

The noodles - priced a less than a dollar and quick to prepare - are eaten with relish everywhere from offices in Shanghai to construction sites in Shenzhen.

"My husband and son love instant noodles. They eat them as breakfast and as a midnight snack, more than twice each week," said a 41-year-old woman who gave her name as Mrs. Yun, as she wandered down the instant noodle aisle in a Shanghai supermarket, confronted by dozens of brands of instant noodles.

With an estimated value of $6.6 billion, China's instant noodle business is set to double to about $13 billion by 2012, and players are scrambling for market share and brand recognition.

Colorful packaging, tie-ins with the Olympic Games in Beijing in August and new flavors and recipes, like low-fat noodles, are some of the strategies adopted by manufacturers fighting out the "noodle wars" in the aisles.

China is the world's biggest market for instant noodles. Its consumers spend about $5 per capita per year on instant noodles, according to Euromonitor International.

Instant noodle packet prices range from one yuan, or 14 cents, to five yuan, or 70 cents, for the high-end brands, which are gaining in popularity and yield high margins.

So how can noodle manufacturers get a piece of the action? Product development, advertising and distribution appear to be crucial, according to players and experts.

"The core to our business is brand management," said Alex Lo, president of Uni-President Enterprises, Taiwan's largest food conglomerate and the third largest maker of noodles for the Chinese market.

Increasing brand recognition is crucial and total advertising spending promoting instant noodles in China in 2006 amounted to $237.4 million, a 19 percent jump from the previous year, according to Nielsen.

But turning advertising and promotions into additional sales will not be an easy task. Despite the size of the market, the Chinese noodle industry is dominated by one company, Tingyi, founded in Taiwan. Its Master Kong brand commands a lofty 43.3 percent share of the market, according to CIMB-GK Securities. Its closest rival, the Japanese joint venture Nissin Hualong, has 14.2 percent, followed by Uni-President, with 10.5 percent, according to CIMB-GK.

Driven by demand from more affluent and health-conscious eaters, one of the biggest growth areas is in low-fat versions of traditional instant noodles, which are deep fried as part of the production process.

"Healthy positioning of instant noodle brands are the key factor driving consumer buying patterns in Greater China," said Michelle Huang, an analyst at Euromonitor International. "In mainland China, instant noodles manufacturers launched new variants with added nutritional value in an effort to break the traditional perception of the instant noodles as being unhealthy."

Nissin, one of the biggest noodle makers in Japan, has been promoting non-fried variants in China and at home.

Through a 2004 tie-up with Hebei Hualong F&N Industry Group, it has formed Nissin Hualong Food. Its main competitor, Tingyi, owes its success to entering the market early and building up strong brand loyalty with wide distribution.

"Tingyi has been able to garner significant market share due to its distribution network," said Renee Tai, an analyst at CIMB-GK in Hong Kong. "It's not just ads and pushing products through with promotional activities, but it's really getting the products through to customers."

Tingyi has located its manufacturing facilities close to distribution centers, which ensure it gets its products to market quickly and smoothly, Tai added.

To maintain market share and lower the impact of soaring raw material prices, Tingyi is focusing on the high-end noodles where margins are bigger, said Tai in a recent research report.

Noodles in China have a long history. Opinions differ over whether the Chinese, Italians or Arabs invented the food, but a 2005 discovery of a sealed bowl, believed to be 4,000 years old, in northwestern China could swing the debate in China's favor.

Less controversial is the instant noodle, whose origins date to 1958 when Momofuku Ando, founder of Nissin Food Products, created his now famous "Chicken Ramen" noodles to feed the masses in post-war Japan.

Offering instant noodles in a styrofoam container, in which they could be cooked by adding hot water, made the product a worldwide hit with people looking to eat on the run.

Nissin is now poised, along with other market players like Uni-President, to gain from a blitz of retail and marketing promotions leading up to the Olympic Games in Beijing.

Uni-President, a relative latecomer to the market, is one of the event's most likely beneficiaries, after being named as an official sponsor by the Beijing organizing committee in 2006.

Uni-President, whose noodle business has been making a loss, is banking on the games and the recent listing of Uni-President China Holdings in Hong Kong, to build its mainland presence. The company has volunteered to donate one yuan from each sale of instant noodles to a fund to build schools throughout China.

However, analysts say the costs involved with being an official sponsor and the additional marketing expenses could steepen losses and not necessarily translate into to increased sales.

"It will be able to create brand awareness, but will it be able to catapult them into winning market share?" said Jack Chang, an analyst at Yuanta Research Center in Taipei. "That's the biggest question."

Uni-President is also looking at local area marketing in China. It established a research team in Kunshan, near Shanghai, to develop flavors to meet local tastes - no small task considering the sheer size of the country and the diverse range of culinary styles.

(Source: International Herald Tribune, 2008-2-24)